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In a world where overspending, debt, and keeping up with the Joneses rules us all, where the voices from the merchants, restaurants, and credit companies lord over the common man. Out of the darkness, like a beacon of hope, comes a new voice. A voice that's rich and creamy like your favorite butter and delicious like cheeseburger pizza on your diet cheat day. It's the Stacking Benjamins Show, live from Joe's mom's basement. It's the Stacking Benjamins Show.
I'm Joe's mom's neighbor, Doug. And how's your trip going as you move up the wealth ladder? Today, we'll help you move faster with a guy who's going to explain how we should invest differently depending on where we are in life, the man behind the popular Of Dollars and Data blog and the COO of Ritholtz Wealth Management, Nick Maggiulli. In our headline segment, one golfer reflects on the big moments in life. What does that have to do with your happiness? We'll share. And then I'd step into the shower if I were you because I'll probably make your head explode with my incredible trivia. You know, cuz it'll be easier to clean up later. Anyway, now three guys who think diversification means separating the snacks into multiple drawers down here. It's Joe, OG, and Doc.
Hey there, stackers. Happy Wednesday. We're so happy you're here with us. You made it. You found us. Sit back and relax because man, we've got some goodness. Nick Maggiulli is coming down to the basement. But as you heard, we have a special guest co-host with us here. OG, how are you, my friend?
I'm not a fan of Nick Maggiulli.
I thought you was going to say he's not a fan of the co-host, but the new intro. The new intro being Doc G.
I was wondering where he was going. Like, what's new? I thought he hated his own G. I thought you'd be happy to.
He doesn't like somebody else stealing the thunder, Doug.
Oh, that's a little love. OG just showed me some love and I DIDN'T EVEN WOW. You've got old G and new G.
And that voice that you're hearing is Doc G himself. He's the host of Earn and Invest and the author behind super bestsellers Taking Stock and The Purpose Code. Dr. Jordan Grumet is here. How are you, man?
I'm good. Just don't make me answer any trivia questions, please. No more trivia.
Well, the fact that OG, gee, you should be giving him a hug because this guy has won so many trivia contests on your behalf this year. I think it's been a two-man team propelling you to first place on our Friday trivia.
Well, let's talk about one and three quarter team. I'll take that. Team G. Team G.
Let's talk about something that's not trivial, which is this appearance by Nick Maggiulli. We on Monday dove into this idea of the wealth ladder and the fact that when you're just starting out, there's nothing really that is trivial. You've got to pay attention to all the little things to make sure that life goes well for you. And then when you get up the wealth ladder, that now you can start making some decisions that you couldn't make before. Get the wine with the meal at the restaurant, it's no big deal. Pay $1,000 or more to upgrade your seat on the airplane, no big deal. It's not going to affect your net worth. And I guess a question for you, Jordan, is, you know, in your first book, Taking Stock, you talk about when people pass away. Have you found that as people are further up the wealth ladder that their end of life feelings about their life change? They feel more fulfilled as they go up the wealth ladder.
I actually have found that generally people complain of the same things and they have the same regrets. And it doesn't really matter where you are on the wealth spectrum. So yes, people who are incredibly poor might talk a little bit about money, but other than that really people talk about they regret not doing the things that were the most important to them or the relationships that were the most important to them. And so a lot of times it isn't someone saying, 'Boy, I wish I made more money.' It's almost always, 'Boy, I wish I had the courage to do this thing that was important to me.' Or, 'Boy, do I wish I fixed that relationship.' And this is why I think, OG, this idea of the wealth ladder is important. It isn't just growing your net worth. It's about not stepping in it so you can continue to just do the things that are truly important. You know what I mean? In the beginning we talked about on Monday maybe being too conservative on one hand by over-diversifying into bonds or ridiculous investments, your brother-in-law's restaurant, you know, maybe doing things like that which are not great. But on the other side, not being conservative enough by foregoing insurance or having too much money sit in cash. Like it's as much about not stepping in it as it is about growing your net worth more quickly.
You still have to have a plan for what all of this is going to turn into. I mean Joe, you've talked to a lot of people in your life. I talk to people every week. Jordan, you've talked to tons of people about money and health and life planning basically. And it doesn't matter if you have $100,000 or a million dollars or $10 million. If you don't have a plan for what you want to do in your life or if you're generally not content with what things are, there's no amount of wealth or income that's going to solve that. And if you just think that, well, all I need to do is a little bit more, then finally, I'll insert thing here. You're not going to do that. You know, we famously say it quite often on the show, if you don't donate 10% of your income to charity when you make $100,000 a year, you're not going to donate 10,000 or 10% of your salary when you make a million. And a lot of times people think that they go, well, you know, right now I can't. But if I could just make insert thing here, then I'll be able to do the thing that I want. Sometimes doing the thing that you want isn't necessarily a writing a check type of experience, right? Being good to your spouse or developing relationships or hanging out with your kids and going to a ball game or whatever it is isn't necessarily about like I need to make twice the net worth because you can go to the Rangers game for 15 bucks a ticket if you want. They're not box seats, you know, in the suite, but is it that much better? I don't know.
But it's a sweet standing room ticket.
See what you did there? So having double the money or double the net worth doesn't necessarily solve your problems if you're still only thinking that I don't have this life plan. I'm going to figure this out later. So I think you need to be who you're going to be. Understand what you're shooting for and then use the money and the building of your wealth to free up the time necessary to do the stuff that you want to do. If you do that it doesn't matter how much money you have.
And that is the perfect introduction, OG, because I think Nick Maggiulli is the best guy to talk about this. He is a data scientist who created this amazing blog called Of Dollars and Data because if you're going to go down a road, it's best to find out who's gone down this road before you and how did they find success. We talked on Monday a little bit about Alex Hormozi early in the year saying that you pay an ignorance tax.
Well, you pay the ignorance tax. You pay... No, you do. Oh, you pay it. You pay it. I don't pay. You pay it.
If you don't do this type of research. So, Nick has already done a ton of the research around how people have gotten wealthy. He's the chief operating officer and data scientist at Ritholtz Wealth Management, one of the top money management firms in the nation. Author, as I mentioned earlier, of the very, very highly regarded and must-read blogs on the internet when it comes to money, Of Dollars and Data, where he focuses on the intersection of data and personal finance. You've seen him all over the place. Today, he's going to be mentoring us on climbing the wealth ladder. But before we get to that, we've got a couple of sponsors who make sure we can keep on keeping on. And you don't pay for any of the amazing mentors. Not just Nick, but Jordan, OG, Doug, me. You don't pay for any of this goodness. We're going to hear from them. And then Nick Maggiulli coming down to Mom's Basement to talk about climbing the wealth ladder.
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And I'm super happy he's back in the basement. Nick Maggiulli's here. How are you, my friend?
Doing good. Doing good. Thanks for having me on again, Joe. Appreciate it.
Dude, I feel like the Ritholtz people just taking over our podcast. Can we just call it? We just had Barry here. We had Josh here. We had Nick twice this year. Like, what the hell's going on?
Hey, man. We're just out there putting out content, trying to help people as much as we can.
And you guys totally are. This project is interesting and I want to start where you start. You played chess as a kid.
Yeah, I played a lot. My dad taught me when I was like four or five years old and started playing his friends who didn't really know how to play. So, I beat them and they would be shocked when like a little kindergartner plays. You know, I wasn't like a prodigy. I was just good enough to beat them, which is all you needed. Pretty low bar. Yeah, it was fun. I played a little bit as a kid. Then my parents divorced. I didn't really play as much. Then I kind of got back into it in high school and it was just a fun journey. And there's really a lot of analogies between chess and building wealth and life and a lot of stuff there which, you know, if you really think it through, it's actually kind of interesting.
Well, I want to ask you about that analogy in a second, but I remember I was okay at chess. I like board games in general, but I read Bobby Fischer's guide. Did you read Bobby Fischer's guide?
I did not read Bobby Fischer's Guide, unfortunately. Bobby Fischer's guide is really cool because it just gives you a scenario. Like it shows you the chessboard in a scenario and then it tells you to solve it and you turn the page and it gives you the answer and then you get done looking at it this way and then you turn the book over and the second half is just more advanced things going on. So it was really neat and my openings got really good. So I was super good at like the first 15 minutes of a game.
If I hadn't blown you out of the water in the first 10 minutes by not making stupid mistakes, Nick, you'd have your way with me. Like I was absolutely horrible. But when I was reading your introduction, you had kind of the same lesson when you came up against some better chess players.
Yeah, same thing. I literally just memorized openings, got very good at that. So, I knew my openings well. I knew kind of how to respond to most things. But you're right, as soon as it started going into a territory I wasn't familiar with, I would have lost the same thing. I think that's how a lot of people learn chess. Like it's like, 'Oh, just learn how to do the opening, learn how to trick people, mate them early.' Like I knew the four-move checkmate, all those things. It doesn't work against a real chess player. Like they know all that already, right? Because they learned that already. So it's just fun to kind of think through those things.
Yeah. I remember you saying, you know, this guy sometimes he would play along with you, sometimes he wouldn't. Every time you would look at his opening, he would do something totally different. You're like, 'How the hell do I even learn anything from this?' So speaking of learning something from this, what's the point here? What does this have to do with building a quote wealth ladder?
Well, I think the idea in chess, and I think everyone who's played chess has kind of had this moment happen to them at least once a game, if not more. At one point in time, a certain strategy may look like it makes sense. But then in the future, literally one move later, it's like actually that doesn't make sense anymore or a new possibility's been opened up. And I think the same thing is true when we think about building wealth. What you used to do for money may not make sense what you do for money today, right? That's in terms of the income side. We can think about that in the spending decisions. We can think about that with your investment decisions, etc. And so, as you build wealth, you kind of need to change your strategy. And that's kind of the main idea here. Just like a fitness coach would give different exercise advice to a morbidly obese person versus a well-trained athlete, I think we need to do the same thing with our financial advice where it needs to change a little bit depending on where you are and more importantly where you want to go. So, that's where I'm coming from here.
You and I had this discussion when we were in New York a few months ago that, you know, it's like people in their 20s spend a ton of time thinking about this hardcore diversification, Nick, when that's not a strategy for a level one. That's a strategy for somebody who's further along the path.
Yeah, exactly. So depending on how much wealth you have and how much your wealth can generate in terms of income, that's really the big thing to kind of take into account here.
You've got this cool number, this cool rubric to think about what's a trivial amount of money for you and it's 0.01% of the wealth you have is generally a rule of thumb of that's the number that you think of, yeah, okay, I'll make that decision, that's fine. So as an example, if you're a stacker out there who's hit the million-dollar mark, that means a hundred bucks to you, you're like, whatever, a hundred bucks is no big deal.
Yeah. So that's called the 0.01% rule, which is just a great name, by the way. Your wealth. Yeah. Your wealth times 0.01%. Or you can divide by 10,000, whatever is easier for you on the calculator.
Yeah. So if you're a, you said a stacker worth a million bucks, a hundred bucks to you, no big deal. It's a trivial amount of money. And so I think that's a useful metric to use your net worth or your wealth because it allows your lifestyle to creep, but only after you've shown financial discipline. After you've built the wealth, then you can let your lifestyle creep. Seeing a raise in income, you could let your lifestyle creep, but you could lose that income. It's really, there's a lot of unknowns. Income can be fickle.
I think with wealth, it's like, look, I've proven I can do this. I can save money, invest, build my wealth. So now I can spend a little bit more. You can kind of allow the purse strings to loosen up a little bit. So that's kind of my thinking on it. And obviously that depends on every wealth level. We can get into that once I provide the framework. I think it's a little bit easier to understand.
Yeah. Well, let's do that right now. So you have these different levels on the ladder that people are at and really what's a good move for level one different than a good move for level five. So let's walk through them. Level one you call paycheck-to-paycheck level. What level of wealth is that, Nick?
That's less. So by the way, this is all net worth. So all of your assets minus all of your liabilities. So that's going to be obviously, you know, your car, your home, stocks, cash in a bank account. That's your assets. Subtract out your liabilities. That's going to be like your mortgage debt, credit card debt, student loans, etc. You get that number, hopefully it's a positive number. Hopefully, it's a large positive number. Right? Level one, that's less than $10,000 in wealth. That's about 20% of US households. Level two, that's $10,000 to $100,000 in wealth. That's also about 20% of US households. Level...
Can we talk about the decision on these before we move on? Because your first $10,000 paycheck-to-paycheck, just going back to that 0.01% rule. Every single decision a paycheck-to-paycheck person makes, there is no trivial amount of money. There is truly no such thing for this person. Level two, by the way, which you're getting to, you call grocery freedom. And that's because these $10 decisions can be trivial. Do you go with the more expensive milk or the less expensive milk? You can go with maybe your favorite and it's going to be okay.
Yeah. By the time you get deeper into level two, which is anywhere from $10,000 to $100,000 is the end of level two. That's exactly where you have that grocery freedom. And then once we get into level three, that's what I call restaurant freedom. And that's $100,000 to $1 million in wealth. And that's going to be about 40% of US households. That's your, what I'm going to call the typical middle class, right? That's, I know it's going to say that's middle class up to a million, but with real estate prices, retirement accounts, and everything where they are today, $100,000 to a million really is like middle class in most of the United States.
Sure. And you and I have had this conversation before. You like a glass of wine. I like a glass of wine. Everybody knows a glass of wine at a restaurant is a ripoff, but you call it restaurant freedom because you can order the damn glass of wine and who cares?
Yeah. Yeah, once you're, you know, as I said, if we use the 0.01% rule and let's say a glass of wine is, let's say, $15, $20, your net worth has to be somewhere in the $150K to $200,000 range. And really, if you want to be specific here, you should use your liquid net worth cuz like you could own a home for, you know, you could have a $200,000 home and if you have no cash in your bank account, obviously you shouldn't be spending that much on a wine. Just assume your liquid net worth. So, take out retirement accounts, take out your home equity, anything like that. And that's a good metric to use there. So that's up to a million. Then level four...
Level four is 1 to 10 million. That's what I call travel freedom. And that's where you can start to get a nicer seat on the airplane, stay at a nicer hotel, etc. You can't fly private yet. That is actually level five. That's the highest form of travel freedom. But, you know, in general, we don't see people flying private until they either have $2 million in annual income or $20 million in wealth, which is just a lot of money. A ton of money. So, it's very rare. Yeah.
I was about to call it a good start, but you can't live on it. Yeah. Level six you call then impact freedom to your point.
Yeah. Level five is, I'm sorry. So level five is 10 million to 100 million. That's what I call house freedom. You can kind of buy a house basically anywhere you want. And then level six is impact freedom which is 100 million plus. Now the nice thing about these levels, if you just memorize that level three is 100K to a million, you can back out all the rest. You just multiply by 10 to go up or divide by 10 to go down. Right? So once you kind of get the hang of this, I'll start saying the levels and I won't have to repeat the net worth values all the time. It's just very easy at that point.
You know, and as you're talking, I'm thinking about The Millionaire Next Door and you brought up the way that you fly. Like, you know, you can't identify a lot of the time, Nick, the millionaire next door because this person has millions of dollars, but they're still flying economy. Yep. Why is this some people that are level five, level six still spend money like they're level two? Some people in level five just don't want to spend, you know, they don't want, they think it's a ripoff to spend $10,000 an hour or something to get a private plane, right, to rent it temporarily. And that is quite expensive. I mean, a business class flight, I mean, I guess it depends. Like, if you have four people and you need to put them on a business class flight across the US and it's $2,500 each, do I want to spend that much or do I want to, you know, let's say you have four people, you're going to spend 10 grand on that or, you know, it's a 4-hour flight or something, you're going to be spending 40 grand. I don't know. It's a question. Is that worth it for you? Right? These are the types of questions and not a question I ever have to deal with and most people never have to deal with, but it's something you have to think about at that level.
I think on this side, as I was reading your words, I also thought that it isn't about spending less. If you choose to spend less, it's like some people that are level two are looking at people level five and they're making these, you know, somebody pulls up next to you, Nick, and they're driving a Lamborghini and you're like, 'Oh, this guy thinks he's hot.' Well, the Lamborghini to him if he's level six might be an afterthought. Where to you at level two, that's, you know, that's going to not only eat up your whole paycheck, you might as well live in it.
You'd have debt, too. Yeah, you would have debt at that point as well. And once again, you can't really know like obviously the people in level five and six who can afford those supercars. Many of those people don't even own those. Like, it's just not something they do, which is ironic. And some of the people that have those, they have them on debt. They're borrowing them. They rent them for a day. I mean, all sorts of stuff. You know, social media influencers rent houses and stuff to look rich when they actually aren't. So, it's very interesting how that works.
Let's do a quick case study. Who is Konosuke Matsushita?
Uh, come, I think I got that. No, that's how we would say it as English speakers, Matsushita. Like I don't, it's very difficult. I had to do all this in the audio.
I pronounce that like a natural.
He was the founder of Panasonic and his story is really interesting. It's actually a really good parallel for thinking about the wealth ladder because he started working when he was 9 years old. He eventually got an internship, started working in the electrical industry right when electricity was coming out. Then he started working at this company, worked all the way to the top of the company, you know, at least for his position by age 22. He couldn't make any more money. He was maxed out. He started inventing other things. He invented this bicycle lamp and he brought it to a supervisor like, 'Hey, this could sell a lot.' And the supervisor told him, 'No, this is silly. Stop doing this. Just do your job.' So he's like, 'You know what? I'm going to take this out to market.' Started his own business. Started selling them. Was running, doing everything for the business. At some point he was getting too busy, he hired someone, right? So he went through all these stages which are very similar to like levels on the wealth ladder except with his career. You know, at one point he was learning from someone. At another point he kind of learned everything he could learn, was maxed out at his job. Then he realized to get to the next level he had to go create his own business. And then to get that business to get bigger, he had to hire people and create divisions. And by the time of his death, it was like the largest electronics company in the world, right, in like the late 80s. And so he was called the god of management because he realized how to manage people, create, you know, autonomous divisions and really was great for Japan and a lot for corporate strategy. Did a lot for that in that country.
It was funny. I was talking to my son about him and about some of the lessons. Like I remember this thing I tried to teach my kids when they were little and he's 30 now and we just went to lunch together and I said a mistake I kind of made was that, you know, my dad was a blue-collar guy and he said, you know what, we might not always be the smartest people in the room but we won't be outworked. And I worked hard to teach my kids that and a mistake that I made in my career was that because of the fact that my dad was a strong part of my life, I held on to that into level three and into where I'm like, 'Yeah, you might be smarter than me.' And there were some things I did that were completely stupid because I was working harder than you at something that was completely irrelevant. So, I love this idea of him at Panasonic and the fact that what you focus on depending on the level you're at 100% matters to the game you're playing.
Yeah, I think people realize this. I mean, maybe eventually too late, but it's not just your effort that determines results. There are people out there in this country that are working more hours, working harder than CEOs at other companies, and they're making a fraction of their pay. And so, it's not, I think people know this intrinsically. It's not just completely linked to effort. It's what you work on, the types of things you work on, what you say no to. And of course, effort matters. I don't want to say that, oh, every person that's doing well didn't put in effort. No, there's usually a lot of effort, but it's where you direct the effort, how you guide it, etc. So I completely agree with that and I think the reason this happens is people get caught up in their habits. If you do something you get very good at it, it gets easy. It's automatic. You just keep doing that thing. But if you just keep doing the same thing over and over and over again, you will get better, but at some point like you're getting diminishing returns. You're not really, you know, extracting more. You're not learning more, etc. And then you're not progressing. And so sometimes you need to try something new, change things up. And that's kind of, that's what this book is about. I was trying to be like a wake-up call for those people that feel like they're stuck in a certain financial level in their life.
I love the idea that sometimes you got to break the habit. The habit's not great. In fact, I think you should tweet that to James Clear. Hey, James, sometimes these atomic habits aren't... No, I'm kidding. You frame this around this concept of opportunity cost. I'm assuming a lot of our stackers understand the idea of opportunity cost, but can you go through how examining whether something is going to make sense career-wise and if you're thinking about making money, how opportunity cost is a piece of this equation.
Yeah. So, it's like what else could you be doing with your time? That's always the question. And I don't want you to think about this like throughout the rest of your life and drive yourself mad with like, oh, I can't spend time with my kids. I should be, you know, earning more money. Yeah, I don't want you doing that either. I think there is a question of, okay, what am I doing with my time? And does this make sense? The example I give, you know, I'm actually right now I'm in Southern California. I'm at my father's house. When we were young, we would, all the cans we would drink out of, we would collect all those cans, put them in a thing, and take them down, you know, get a bag or two, and you get about 20 bucks per bag. Maybe now it's a little more. I don't actually... No, they haven't changed the CRV, so it's the same price today. You get a couple 20 bucks per bag or something. My dad doesn't do that anymore. Neither do I cuz it's not worth our time. He could be calling a client. He sells insurance and stuff. So, there's so many other things we could be doing that even that little thing, like yes, we still recycle, but we're not going to go put them in bags, take them down and separate them. Like, it's just too much work for not a lot of effort. And I think that analogy, maybe it's not collecting cans, but in your career, you're still collecting cans and you need to be doing something else. And figuring out what that is. I can't answer that for you because it's a very case-by-case thing, but figuring out what can I be doing to grow my wealth in a different way. And that's kind of where the thinking comes in.
Let's go through some of these. You say though, at level one to get to level two, hourly jobs are fine, like working your ass off, you can go from level one to level two by working your ass off and it's not a bad lesson to learn.
Exactly. It's definitely true. Like odd jobs, doing all sorts of stuff. I don't think there's, you know, if you don't have wealth and you're like in a tough situation, like there should be almost nothing beneath you, unless it's like obviously like dignity or something bad to your family or something. Outside of that, if it's like, hey, hard work's hard work and you got to work to get somewhere. If you're trying to go from level two to level three, and again, this is from a hundred thousand to a million. If you're trying to go there, you really need to start thinking about highly skilled work or spending time on the right things. Level three to level four, think about career advancements.
Why do you have side hustles at level three? Is it because finally you have a little bit of time independence when you get to level three?
Yeah, I think that's a piece of it. You need to have some main, I don't want to say main hustle. You need to have some main thing going that's doing decently before you can necessarily do a side hustle. And obviously it really depends. If you, let's say you're young, you can live with your parents, you have very low cost, then yeah, you can start your side hustle whenever. But if you have a lot of cost, you have to pay rent, you have to do all these things, and you don't have a lot of money, you need to have some stability in your main job before you can start doing a side hustle, right? And so, of course, some people don't do that. They just skimp by and they figure it out and they end up doing really well. But I think security is the most important thing, especially level one, level two, getting to that first base level of security. Do that then go and venture and do all this other stuff because if you don't, you could end up in financial insecurity for a very long time. You know, half, 50% of the financial distress events in the United States, bankruptcies, delinquencies, etc. are experienced by just 10% of the households. So, it's a small percentage of people that get caught in these spirals and they almost never get out. And that's, it's a tragedy. It really is a tragedy, but that's what I'm trying to prevent here. And so I'm like, hey, whatever you can do to get to some level of safety, then you can start experimenting. It's the same thing Matsushita did. He didn't go and start, 'I'm going to start my business,' you know, before I know how to even do this. No, he waited until he worked his way up and then he made that decision. I think his life is a perfect example of how you might want to do your career, right? In terms of knowing when to make those jumps.
I think about people like Bill Gates. You know, I listen to the Acquired podcast, so you always hear about these founders and how they started young. They didn't wait until level four to start a business. These people out of the womb are starting businesses.
And to your point, it could be huge win or huge loss.
How do you think about this? If somebody's 25 and they're really excited about being an entrepreneur, somebody like Cody Sanchez who is teaching people how to buy businesses versus buying a mutual fund or an exchange-traded fund, which is going to be much safer. There's a lot more liquidity events. It's easier to analyze a mutual fund versus starting a main street business.
I think you don't have to be in like, oh, level four before you start a business. The lowest risk way to start a business and be fine is starting in level four where you have resources, have time. If you actually look at the data, most of the entrepreneurs are in their 40s, not their 20s. So that's one thing. Why? Because they have money and experience. Two things that are very helpful.
And that's 100% Nick, a myth that people have is that it's young people starting businesses.
Yeah. They just get the media attention. Yeah, that's it.
Exactly. Most of the successful businesses I remember like, you know, the downsizing of General Electric and IBM and all these companies over the years and you see the engineers that come out of these businesses. These are people 40s, 50s, even 60s that have liquidity. They know the who's. They know the people that will back the company. They are rock stars versus somebody that, you know, how many times have you seen somebody who's starting a restaurant and they're working off their last 30,000 bucks?
Yeah, it's really tough. And so I think thinking through that, you don't have to be in that level. It just de-risks a lot when you're in that level. And the data shows that those people that have more experience, age, etc., they're more likely to succeed, right? All else equal. You don't have to be in the level. You can have that level through extension. For example, you bring up Bill Gates. Bill Gates was not in level one. Even if it's like, well, his net worth was zero. Like through his family, his connections, his education. Like I would never say I was in level one despite the fact that my net worth wasn't over $10,000 for I think the first 8 to 10 months when I was working, right? Like it took me a while to get there. But because of family extensions, my education, I never was in level one. And so I would argue that Bill Gates has been his whole life in level three, maybe even level four through proxy. So he kind of was there in the sense of he had that family wealth and he had those connections through his family and stuff. And so once you think of wealth in a little bit of a broader definition, I think you can realize, oh yeah, a lot of these people that start these companies, they're not like super, super loaded, but they don't come from poor families either. Like Zuckerberg's not from a poor family. Evan Spiegel, Snapchat's not from a poor family. Bezos isn't from a poor family, right? There are some that are, but for the most part, just generally not true.
Bill Gates, to your point, I never knew what a rockstar both of his parents were. His dad, one of the top lawyers in Seattle. And even before Bill was anybody, everybody knew Bill Gates Senior as a real badass.
You make this point. I had somebody actually write me, a friend of mine, Becky. Becky's probably listening right now. So Becky, I'm talking about you. In the conversation Becky, you and I had in Denver, she was telling me, Joe, you concentrate on income a ton, and you always talk about building your income to build your net worth. Becky was all about you can build your net worth without having more income. And I think you prove through a lot of data in your book that yes, you can, but it's not as likely as if you just focus on building your income first.
Yeah, it's tough. The only way you can do that, you just need more time. And so it's a question of timing. If you're just like, oh, I can save this much amount per month, okay, to build wealth, it's just going to take longer, right? It's much easier when you have that income because if you look at the data, on average spending rises with income but it rises much more slowly than income does, which creates this wedge which is basically your savings which you can invest and if you invest that in income-producing assets that's kicking off more income so your income grows even more and then you have this flywheel going where your money is even earning more than you are at some point and that's where you start to get into real, real wealth building where your money is earning more than you do from working and then you're like, what the heck's going on, is my job a side hustle? Like it's a funny, funny joke, but it's very true.
What was the stat you shared about Elon Musk?
Oh, how quickly. So between 2020 and 2021 was the fastest growth in wealth in human history. I think he made like $100 million a week or something on average between like the low in, obviously I'm picking like March 2020 because it was the low or whatever the low was for Tesla up through 2021 when Tesla just shot up and became super popular and Musk got even more popular and like over that period, you know, he was making like $6,000 a second. And I think if I calculated that correctly, which is insane to think about. And of course, it's not like liquid, like paper. You can just take it out. It's like on paper. But you get the point that I've never seen anything like that. And it's just crazy. And we may see something like that again, but who knows how long it's going to take.
I think you mentioned that his net worth gain during that time frame would have put him on something like the top 10 richest people. Just the gain.
Just like the, yeah. The gain puts him on the Forbes list. Yeah.
Yeah. I said, 'Okay, what do I say? The increase in Musk's wealth in a single week would have qualified for the Forbes 400 list on its own. Yeah. Every time he went to sleep, he woke up $100 million richer.'
This is what a ninja Nick Maggiulli is, everybody, for those of you not watching this on video, he just picked up, turned to the page, and he's got it right there. That's called knowing your book. Nick, let's talk about leveraging your income because depending on what level you are, if you're level one, it probably makes sense to do everything yourself and to not use leverage and to just build that muscle and build the foundation. Let's talk about the oldest way people have started to get ahead. And this is hiring other people. I remember when I got to the point as a financial planner where my time was worth more than the money I was spending. So hiring people to do stuff for me made 100% sense. I remember calling my local grocery store and I told them, and this is by the way probably 1995, '96, Nick, and I said, here's what I want to have happen. I want somebody to buy groceries for me. I want them to go to the grocery store and buy all these groceries for me. Nick, they didn't know what the hell I was talking about. Like they're like, 'Yeah, we can't do that.' I'm like, 'No, no, no. I really don't have time to buy groceries. I want somebody else to do that.' If only bigger.
Yeah. If you just said, 'Wait, what can I make?' The idea has been there, but without the infrastructure for it, you can't do it. It's a great point. Like you knew like, I just need someone to do this. I'm willing to pay them whatever to get this done.
Yeah. So, hiring other people as leverage. What's the upside? What's the downside?
The hiring of other people, especially if obviously in the case of running a business, is, you know, they're freeing up your time to do hopefully higher value-generating activities. I'm guessing that's revenue-generating in your case if you're a financial planner, maybe you're calling prospects, etc. And buy back your time. There's a book out there, it's actually really cool, it's just like, yeah, just buy back your time. As soon as you realize you're too busy, find ways to buy back your time and start doing that throughout your business. That's the upside, right? It's like you're paying someone less than the value they're generating so you as a whole make more money. The downside is you have to deal with people and people can be difficult to deal with. It's not like a machine or a computer that's just going to do the same thing every time and do exactly what it's told. It's someone that has emotions and feelings and things happen in their life and so that can be difficult. Some people love that, some don't like that. And so that's kind of one of the pluses and minuses is dealing with people. If you get good at it, obviously it's a very valuable skill to have working with people and all that, but it is one of the difficulties of using like labor as a form of leverage.
It doesn't seem like a great level one, level two strategy.
Well, first off, you don't necessarily have the money to even do that. So, it's not even possible for a lot of people in those levels. I think you really have to have some resources. Once again, goes back to our old point like you need some resources to start a business or something like that unless you have people that are willing to work for free or something which doesn't really happen. Then that's your only choice.
And that's the bummer. People won't work for free. Yeah, I hate that.
Second way you can leverage, you write, is deploying your money. I remember reading Rich Dad Poor Dad, right? Favorite part of that book is the fact, the big aha that I got, Nick, that I could go to work but my money could have a lunch pail. Remember that analogy? My money would take a lunch pail and it would go to work but it would work 24/7 and wouldn't demand a break. Like that was pretty badass. I was like, bam. What's the upside and downside to deploying your money to work for you?
The upside is, yeah, you're right, it keeps working for you, right? You can use money to buy income-producing assets, those will create income. The downside is sometimes those assets go down in value and so it's not making as much money, could actually lose you money. So some of your wealth which would have been okay in, let's say, a US Treasury bill assuming the Treasury is solvent and everything could lose you money in a riskier asset class or an individual asset like buying an individual company versus a diversified basket of stocks, for example. So those are the risks there and things to think about when you're deploying capital.
You talk about two other strategies to leverage as well, content and coding. I remember Mark Cuban once talking at an event I was at about how coding looks hard to people that don't do it. He said, but it's like learning a language once you know how to do it. It's far easier. So there's this barrier to entry where you and I, Nick, think that it's like I hear people coding, I'm like, oh god, no, I can't do that. Content seems very easy to me because it's what I do every day. Content and coding. Who are these best for when I'm trying to leverage income into more income?
So on the coding side, it's just for anyone who wants to be technical and you
You can use code to get a job, obviously, now with AI, and AI can do so much programming. It's changing the labor market quite a bit. But at the same time, you still need to know how to code. So I'm a data scientist by training, and so I know how to code a little bit. I'm not like a full-on full-stack software developer, but I know enough to be dangerous. And now with an AI tool, I can do even more. So I've built like these calculators on my website where it's like people want to look up the historical returns of the S&P 500. And that is something AI still can't do, thankfully. And so for now, if you want like, oh, I want the dividend-reinvested, inflation-adjusted return from, I don't know, January 1980 to December 1989, I can give that to you, right? I can do it if you're buying over time. Like, so that's an example of using a piece of code to create something. And now people visit that website, and then I run web ads, and so I get, you know, a penny or something every time someone goes there. That's an example of using code and leverage. And obviously, I have an audience, so people know who I am. If, if you created, not you, but just someone without an audience created this and they can put out the calculator, unless it's way, way better, most people probably aren't going to hear about it and use it, right? So that's code. On the content side, you obviously know that very well. That's putting out content where a lot of people, we're going to spend whatever, let's say, an hour talking about various things on this podcast, but that's going to be replicated over thousands and tens of thousands of times every time someone downloads and listens to this conversation, right? I don't have to go and, hey, let's get them on a three-way call and let's have this convo. Let's do it again. And then the convo's different next time. And oh, wait, did we say that last time? It would take us the rest of our lives to have this one conversation with every person that's going to download, if you really think of it that way. But we only have to do it once. So one hour of your time is now being replicated thousands of times. That's because of the internet and the content distribution system and everything. But that's why it's so useful. And that's true with books. It's true with podcasts and many other things. It's why it can be very helpful.
The limits you talk about, to your point, you already said that coding is a technical thing, so that's going to be difficult for a lot of people. Content really gets you from level two to level four. It's not going to get you past level four. Is that just because of the amount that it pays in general, unless like you have to write Atomic Habits or The Psychology of Money? You have to write like one of the biggest books of the decade to get out of level four. Like even if you sell a million copies of a book, don't get me wrong, that's a lot of money. But let's say you made two million bucks pre-tax. Okay, after tax you made a million dollars. That's not going to get you past 10 million, right? So you need to sell either a lot more, or you need to use that content to leverage and sell a higher-value product or something that's like a higher-value business. And once again, that requires another form of leverage. And the difficulty with content and code is just there's so much competition, especially now with AI can write code for you, content can be mass-produced, writing can be mass-produced, all these things. Because of that, it's just the bar is higher. And so competition, it's harder now to stick out. And so you have to have even higher-quality stuff to really win over people and win their attention.
I was fascinated by the third chapter of your book, which is where you look at investing. And I, and I want to touch on this before we say goodbye because you looked at these seven different assets: cash, vehicles, primary residence, retirement funds, real estate investments, mutual fund stocks, and business interest. What did you find was different based on the different level people were in when it came to these seven different assets?
So in general, people lower on the wealth ladder, and I'll just say that's levels one, two, and three, have most of their assets in cash, their vehicle, and their home. And then people higher on the wealth ladder, that's levels four, five, and six, have most of their assets in stocks, bonds, retirement accounts, real estate, and their own businesses. So in general, the takeaway from that is people lower on the wealth ladder don't own a lot of income-producing assets. People higher on the wealth ladder own a lot of income-producing assets. And in each wealth level, the average percentage in income-producing assets goes up. On average, levels one to three have less than 25% of their assets as income-producing ones, so like stocks, bonds, etc. In levels four through six, it's over half of their assets are income-producing assets. The takeaway is it's more income-producing assets all the way up the wealth ladder. And it makes sense. If you have $100 million, it's very unlikely someone's like, 'Oh, yeah, I just sold my business. I just own my home now.' Like, no, they're probably going to own another business. They're going to diversify. They're going to have all sorts of stuff they're going to do with that. Or they may still retain their business. And if you actually look on the wealth ladder, people in levels five and six have more of their assets in an individual business than any other wealth level because that's how it works. They usually start a business that they own a lot of, and that's how they build their wealth in the first place.
Some of the things that struck me just from a financial planning standpoint: level one people holding cash makes a bunch of sense because if every decision matters, if I've got that cash cushion, one bad break isn't going to screw me. And the second thing is, it also strikes me that looking at the huge levels of debt-to-net-worth ratio for people in level one makes sense. You haven't built assets yet. Minimizing that debt as much as possible really has an outsized return on that investment, and minimizing debt, because if you minimize debt, you're getting to level two a bunch easier than somebody goes from level two to level three or level three to level four if they minimize their debt.
